eldavido

I've noticed this with a lot of professions. Comp is back-loaded. They start much lower than software, but the good ones make it up in the end by being owners and having a crew of 10-20 work for them, and earning margin on their labor. Regulation and professionalization (e.g. you need to be licensed) seem to encourage this.

Software, assuming one doesn't go into management, seem to have a more linear comp structure. You start much higher, but it doesn't ramp as dramatically as most trade/licensed professions as you go up. Probably because there's less regulation/capture so even entry-level people keep more of what they produce, vs the almost-feudal nature of many trades/professions.

Just what I've seen, anyway.

>But what this does is says that if the product you created is an asset, the salaries that go into creating that asset should be treated as if it were purchasing that asset.

This is precisely what happens!!

As someone who's taken a couple semesters of college-level accounting, and filed my corporate taxes correctly many years without audit (but am not an accountant/CPA), this seems broadly correct.

I'm actually surprised people are freaking out about this. Of course software is R&D. And of course you don't just get to expense it all at once. It's long-lived, like you said.

Maybe we could have some tax breaks like our friends over in real estate, but I very much think the base assumption should be that software dev is capitalized.

Real estate has this same problem but 10x as bad.

> If anything, that the basics of software development still requires R&D is an indictment of our fields lack of professionalism.

This is a bit much. "Research" maybe, but not "development". Many things are developed -- land, buildings, etc. Someone still has to do the work.

No, this is completely wrong.

It's not "just an expense". Think about an architect designing a house. The tax treatment depends on how the person spending the money "uses" the labor. It might be an ordinary operating expense (fully deductible), but could also be inventory, or a depreciated "capital asset" (closely related to the idea of "capital gains" taxes) whose value is spread over a long period of time, generally related to the asset's usable life.

There is a large body of work around the correct treatment of this stuff, which sits at the core of accounting in the same way data structures sit at the core of CS. It's not the most straightforward thing to explain. The tax code contains a ton of exceptions, but in general, a thing that is long-lived, expensive, not routinely bought or sold, and provide some kind of long-lived economic benefit (e.g. shelter, the ability to produce something, or facilitate some kind of industrial process), is a capital asset. (Sounds a lot like software, doesn't it?) Inventory is something routinely bought and sold, generally for profit. A server is inventory for Dell. For a typical software startup, it's a capital asset.

The whole point of accounting is trying to accurately measure economic activity. It's more complicated than it looks. If you agree to a five-year contract and get paid upfront, not all that money is "earned" (hence taxable) in the first year. If you're in debt and the debt is forgiven, no money changes hands, but that's very much beneficial (and taxable) to you. And if you own a long-lived asset, you don't just get to say, oh, I spent all this money upfront, that's an expense I can use to reduce my taxes. Not how it works.

Just trying to shed some light on this. It is indeed rather complex.

Came here to say this. The level of general ignorance of how accounting and tax works on this thread (not you, others) is astounding.

Of course, if anyone had owned real estate, they'd understand things like depreciation, and the fact that you can spend money without it being an 'expense', or that no, just because you 'made $1,000,000 and spent $1,000,000' doing something like building a house, or a piece of code, you could of course show an accounting profit. You created something of value--that's the point. There's something of value left over. Maybe there won't be in five years, but you can't expense the entire thing immediately.

I actually think this treatment (capitalization of software R&D) is more "correct" from a theoretical accounting perspective. Clearly, software companies are creating something that has residual value with all those developer salaries. As for the politics, I'm not sure. I do know that RE has the same problem (accounting profit can run far ahead of cashflow), but has so much crazy advantaged tax treatment (arguably "loopholes")--1031 exchanges, bonus depreciation--and that's on top of stuff like 179 expensing (not specific to RE I know, but still), that maybe software just needs to work more like RE, where the baseline is "many things capitalized", but all sorts of crazy loopholes driven by the whims of short-term politics.

It certainly makes the accountants rich...

FWIW, my wife's architecture practice is dealing with this 174 amortization (on their salaries, some of which were classified as R&D) and it's killing them, too.

I think there's something to this. Another perspective might be Apple vs Intel, where one of my friends worked (at both) in fairly senior roles 5+ years.

The problem is that companies get really good at solving yesterday's problems. In Intel's case, that was making great CPUs for desktop PCs and servers. I have no doubt that the absolute pinnacle of desktop PC CPU engineering, was done at Intel in the last ~10 years.

The problem is, the world changes. Growth shifts from PC to mobile. People in datacenters start worrying more about cost and energy efficiency and build their own ARM parts. The landscape shifts, and the company is still fighting yesterday's battle. But it doesn't matter anymore-the basis of competition has shifted.

I think it's very difficult to pivot a company's core "basis of competition", or as you've elegantly put it, "self-image". What are we best at? Why are people getting promoted? Who's in leadership roles? The answers to these things need to shift over time, but most companies can't. This is why companies rise and fall.

I think a big problem with Google overall, is that their self-image isn't really customer-oriented. It's more inward-looking, "we're great engineers", "we're not evil", "we build the best distributed systems". The meta lesson is perhaps, orientation around serving your customers is the only thing you can fix, long-term. Amazon gets this. The problem is, it's way more nebulous and hard to pin down, than some of the more specific things Google has anchored on for the past years.

This is awesome. Thanks. Wish I could meet you.

Incidentally, missed church today as I was too busy with other things. This isn't entirely common for us ;)

You and I seem to have a lot in common. Been employed, done entrepreneurship, don't mind long hours.

I find it interesting how people navigate these tradeoffs. I'm 38, married with two kids (one 3, the other 6mos). It's BUSY. Especially because my wife has a good career, which for better or worse, is a big part of her identity and something she'll never not do (building architecture). Given that we'll always have her salary, I manage a couple rental properties part time, plus have taken a few swings at getting bootstrapped products out the door with mixed success.

I honestly don't know whether you or I have it "easier". I have friends with stay-at-home spouses. I envy their ability to just go to work and focus. I spent today (Sunday) fixing our dryer, going to the grocery store, and doing other chores a stay-at-home wife might handle during the week. I work almost every weekend doing either housework, tax prep, or other stuff. On the other hand, I know we'll never not eat, so the financial stress is a lot less than a one-income household trying something entrepreneurial. Unless you're either really rich or have saved a lot (and willing to risk it), it's hard seeing how someone in that position, especially with kids in a high COL area, can make it work without taking a big salary out of the company (and getting financing to do it). It seems borderline impossible.

I think raising two kids is at least one "full time job", probably more because it's not just 9-5 Monday-Friday. If you're in a two-working spouse family with kids, I think it's very difficult to work more than 45-50 hours/week, and that's assuming you have daycare. There's just SO MUCH to do. Laundry, groceries, dishes, and meal prep are easily 15-20h/week for a family of four. Add to that taking kids to/from childcare/school, putting them to bed, bathing them, keeping them entertained on the weekends, doctors' appointments, and the rest, it gets tough to work more than 50h/week with a working spouse. I think 70 is basically not doable unless you're OK going days at a time not seeing your kids, and even then, only one spouse/partner can really do it.

Meredith Perry from uBeam comes to mind https://www.vanityfair.com/news/2016/05/another-red-hot-tech...

I met this woman through friends of friends. Just kinda felt weird, and off.

First thought that entered my head as well.

And it really is "the West" (not just US), since the original phrase is Latin.

We considered this, but it's another step. What I'm talking about is going to be hard and take a while, but feels like the "endgame" for how this is going to be done--automated, done with phones, no extra work.

Predictive/preventive maintenance is actually a big thrust behind my current company, Dials.

HOAs, which we serve, are run by busy volunteers, yet expected to perform almost insane financial gymnastics, planning 30 years of major component replacement, e.g. common area roofs, piping, asphalt resurfacing. This involves (a) estimating each component's lifetime (total and remaining), (b) getting a cost estimate, and (c) coming up with a plan to spread paying for it out over however many years before it's needed, breaking that up between the units in the HOA, and collecting the funds, month after month.

People blame cultural issues ("people won't pay for maintenance") or "laziness" but the truth is, it's just too damn hard to do predictive/preventative without a very accurate inventory of what you have. You need to get all of this into a cloud environment, and then somehow expose it so that either internal staff or external vendors (more common) can see exactly what you have, bid on fixing it, and track status and work in a fine-grained way.

Our ultimate goal is doing the entire inventory automatically using computer vision (partner and I used to work in self-driving) and having enough data around that we can price and estimate everything accurately.

Nobody wants to pay for this as a standalone product so we just decided to build a payment collection product (for monthly dues), start with that, and build it up. It's going pretty well and we'd love to get more people on it. Email's in my profile in case you want to chat

> _That_ is why developers are cautious. Do you _seriously_ think that you are the only person in your team who understands "commercials" or "cost benefit analyses"?

I realized this attitude is common to all tradespeople, not just developers, but also HVAC techs, roofers, electricians, pretty much anyone who's long-term accountable for supporting a large, complex system.

More of an observation than anything.

Only 11.6% of US employees are unionized (straight from the US bureau of labor statistics), FYI.

Absolutely it is, and anyone in denial about that can look at European GDP growth, GDP per capita, youth unemployment, firm valuations, or about 20 other economic metrics to back it up.

You can't start a company there because all this social spending makes it super hard to get going. I think the US is heading this way too now, toward lots of big companies with fat required benefit packages the little guys can never match (even if they eventually go on to become huge).

I wish people who would being so starry-eyed about Europe. One of the 10 biggest companies in Italy is the post office. Lots of industrial power, that.

The other thing it does (giving employees more power) is make it harder for companies to change course. Most people hate change and will fight it as hard as they can, seeing all layoffs as "bad" and "evil".

Germany's auto industry is a great example of a highly unionized industry. Pay is good. But also, it's very hard for Germany to enact anti-oil and gas policies (carbon reduction / pro-environment) because it hurts auto workers. It should also give anyone really pro-union pause to consider why Germany didn't produce Tesla. They had every advantage imaginable including a well-trained workforce, existing manufacturing infrastructure, the deepest capital markets in Europe, and existing distribution relationships. And yet, the Americans beat them to it. Why, you ask? Because workers don't want to retrain or change what they've been doing for 50+ years. There's too much inertia, too much complacency, too much "this is how we've always done things".

I'm not saying I can predict this stuff looking forward, that's borderline impossible.

But it's more than just a feeling. Keynes was writing in the 1920s/1930s about "animal spirits" driving the business cycle. Read Ray Dalio's stuff on credit cycles. Collective psychology drives a lot of carefully measured phenomena, things like savings rates, credit growth, unemployment, etc.

I spend probably 4-6 hours/week reading professionally edited, long-form journalism. In all honesty, I'm not sure it's a great use of time, but I can tell you all about things like the UK's no confidence vote on Boris Johnson, or why the "Red wall" situation in the UK reminds me of Michigan and Pennsylvania in the US, north vs south Europe's views on the EU's 750 billion NGEU stimulus, the performance of Nordic sovereign wealth funds, or why the expiry of the US's child tax credit was catastrophic in terms of poverty reduction.

Point being, if you really immerse yourself in good news for a couple decades (I've been reading at this frequency for ~20 years), it trains you toward a healthy baseline of what's "normal" vs. exceptional.

I was talking to my wife last week, telling her that at this point, at least as it pertains to economics, I usually know what "normal" means (e.g. GDP growth, unemployment, etc), and I know what's "weird" about the present day, but what I haven't yet figured out is what stays the same over time vs. what changes. Take US interest rates. The 10-year treasury note was around 1.00% 18-24 months ago. That was low. Now it's in the 3s, which is still fairly low. What I can't figure out is whether this "lowness", which is historically bizarre, will continue this way, or if there's some permanent structural change (e.g. more elderly savers relative to young users of capital) that has permanently altered the equilibrium. That does seem pretty hard, though.

The limit case is Spirit Airlines.

Sure they're cheaper, but do you really want to feel like you're going to court getting on the plane, arguing over how many personal items you're allowed, their size, etc? There is in fact a limit to what many people (including me) will put up with, at some point, you just want no change fees, no baggage fees, etc and pick Southwest.

Incidentally, when people talk about schools and healthcare, and suggest a one-size-fits-all model, I'm shocked they don't see how much peoples' preferences vary. If we can have so much choice and variety when it comes to something as stupid as air travel, it seems crazy we wouldn't want the same thing in healthcare.

I'm 37 now and this idea of "collective psychology" really fascinates me. Mention age because I'm just old enough to start seeing these large-scale "shifts of mood" over my own life. In hindsight (US perspective here), I can now see how the mid/late-90s were a happy time, 9/11 was a complete "shock", optimism kicked back in around 2005 leading to the 2008 financial crisis (huge run-up in house prices, sloppy mortgage underwriting, etc), but 2008 was a bomb, and now 14 years on, the way I'd describe the last decade is "slow-burn turbulence". We know it's getting more chaotic, we see it, politics is more fragmented, but it's hard pointing to one particular event as "it" the way we could with, say, 9/11.

I mention this because I think these cycles have profound effects on economic variables like spending, credit use, etc. Your commend about "spite spending" fits perfectly with this--yes, household balance sheets are deteriorating, but people are just sick of covid, they want to take a vacation, and get outside.

I think a similar thing drove housing in the 50s, actually. It's easy to look back on the mid-century dynamic as "boring", "sterile" even, but WWII ended in the mid-40s, and if I'd spent a year of three getting blown up in Europe or Japan, a quiet house in the suburbs is exactly what I'd want.

This is so unrealistic.

Whenever I see people making the "get your stuff done", I think of sports teams. Owners don't tell players, "The goal is to win the super bowl. Go figure it out." They hire managers, exercise physicians, and dozens of other specialists that prescribe detailed programs of physical training, practice, and even what to eat, to maximize performance.

The point is that management has value. Someone has to do the work, of course. But someone also has to figure out how to organize everyone, ensure things are done in the right order, the right people are meeting, and communicating, and such, and yes, tell people whether they're doing enough work, or need to be doing more, and maybe even when to show up for work, or how late to stay. Management's job is to connect the highest-level goals with the actions of the people lower down in the organization, and that very much includes things like controlling the quantity of work and how long people are in the chair/at the screen.

I'm not saying management is always done well (it's not) or that you can never have too much (you can). Only that, most people don't want to be told "Go run a business. Figure it out." They need milestones and pacing and to have huge nebulous goals broken down into smaller chunks that can be measured and scheduled. People want to know how to do the job well, whether they're doing enough, and whether things are on schedule. That's management.

If you don't like it, there are plenty of career paths like outside sales, consulting, or others where you get to more or less make your own hours.

Buttonwood, I believe the 27 Nov issue. It was about duration and how cash and short-term bonds are short-duration assets. Great article, btw.

(I'm a couple months behind and working my way forward, I just read this a couple days ago)

I don't think bond prices really matter. They do on treasuries as these are routinely bought and sold.

But consider that most banks, card companies, etc are more like retailers. They buy money at a certain price X (their funding costs) and sell it at Y (loan/card interest rates). As long as Y-X is positive, they're broadly OK.

The ultimate owners of these bonds are pensions, insurance, endowments, and other large actors who are basically price takers. They have huge piles of money to invest ($xx/xxx billion), and limits in how much risk they can take (e.g. only investment-grade debt) but beyond that, are looking for the best price offered given how much they need to invest, and matching the term (e.g. 5 years) to their portfolio needs. These people tend to hold bonds to maturity and just reinvest the proceeds when they mature. They don't sell them on the secondary market as much.

I'm pro-development, but, to a point. I actually agree with most of this. It seems the height of hubris for lawmakers in Sacramento to insist that no, you 350 people in this town, you don't know how the town should be developed, we're going to mandate it for you and force you to do it how we want, local character and situation be damned.

I think the middle ground is that you have to be careful about what zoning and planning codes do and don't allow. In my view, a property owner like you should have pretty broad discretion about how a place gets developed. A lot of very nice-looking town centers developed in the late 1800s/early 1900s (North America) without zoning. It got done because it worked, more expensive/taller/nicer buildings near the middle of the city (on more valuable land) and less-expensive, "lower" uses toward the periphery. It's simple market incentives. The trouble comes when the tax code, zoning, or other policies discourage the natural, higher-intensity development from creating more housing on higher-value land. You're just looking at the incentives and being a good businessperson. People (blue collar) want a place to live. You're giving it to them at a price they can afford. This should be celebrated, not vilified.

I also own (market rate) low-income housing. In the neighborhood where I grew up, there are a bunch of lots with older houses sitting vacant. I own an apartment there and would love to convert some of the existing (empty) houses into duplexes/four-plexes, but can't out of a misguided sense of it being a "single-family neighborhood". This makes no sense. I'm turning something people don't want, into something they do. The zoning completely ignores market forces out of a misguided attempt for neighbors to force their view onto other property owners.

It's well-intentioned but, as other posters have said, carries a huge cost we need to talk about more openly.

I think that number was across the entire population, so includes children, etc. Probably came from either Piketty's Capital or something else (weekly reader of The Economist plus a lot of econ books)

Still, 79k for adults, inclusive of retirement accounts, home equity, etc. really isn't much.

The median net worth in the United States is approximately zero (assets less student loans, mortgage debt, etc). The median 401k balance in the US is something like 100k. I'm probably right of many people here politically but will readily admit, there's a lot less wealth out there than you'd think, and what there is, is held by a pretty small number of people.

Also, speaking broadly, I don't think the economics profession really understands the connection between house prices and rents. It's a complex topic with a lot of conflicting information. I definitely wouldn't take it as an article of faith that more expensive housing necessarily implies higher rents. There are all kinds of complex subsidies like mortgage interest deductions, factors like credit availability, short-term fluctuations in material and labor prices, etc that make a straight-through 1:1 correlation too clean.

As a general comment, it helps to disaggregate when thinking about huge topics like rental inflation. Rent is growing fast in western/mountain markets (e.g. Idaho) and places like Miami, while hardly budging in places like Cleveland or St. Louis. I'm sorry not to have citations on a lot of this, it mostly comes from firsthand experience and a lot of reading -- I read the economist cover-to-cover every week, manage 12 rental units, and talk to friends and family spread across the US (Seattle, DC, Chicago, Indiana, etc) almost every week.

Keep in mind "7.5%" is the aggregate across the entire basket.

This isn't how individual people perceive inflation. What actually happens is that a few things make big jumps (10-15%) and the prices of other things don't increase as quickly.

Maybe not the nicest thing to say, but I'm hardly affected by inflation at all. The four biggest categories to experience inflation recently have been used cars, petroleum, rents, and food. As an urban-dwelling homeowner who doesn't drive much, doesn't rent, and isn't in the market for a car, the only real change has been food, and it's a small enough part of my goods basket that the extra $15-20/week at the grocery store barely registers.

The people really hurting today are the truck-driving renters sucking down 20+ gallons of gas/week driving long distances to their jobs. Those guys are feeling a lot of pain.

What matters for inflation isn't just money, but the quantity of money and credit (thanks Ray Dalio for explaining this).

The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane.

Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up.

People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.

> a good reason to never let rates get this low in the first place

My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people.

You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting one.

Price stability was also fine until about 6 months ago.

The thing I keep coming back to, is how incredibly little asset prices really matter, in the larger scheme of things. What does matter is things like employment, the price of milk, and whether people have a roof over their heads (rental affordability).

In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles". The distributive and stability effects of today's monetary policy might be the longest-lasting intellectual shift to come out of all this.